"There seems little question that in 1929, modifying a famous cliche, the economy was fundamentally unsound. This is a circumstance of first-rate importance. Many things were wrong, but five weaknesses seem to have had an especially intimate bearing on the ensuing disaster. They are:
(1) The bad distribution of income...
(2) The bad corporate structure...
(3) The bad banking structure...
(4) The dubious state of the foreign balance...
(5) The poor state of economic intelligence."
"The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil. Perhaps this is inherent. In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves. None rebukes them."
John Kenneth Galbraith, The Great Crash of 1929
Galbraith gives a nice description of the credibility trap in the second paragraph. No one speaks out against the fraud or injustice, because their livelihoods may depend on it, and they themselves compromised, if not by action, then by omission.
This documentary from The American Experience is also available on Netflix streaming for those who have access to it. I particularly like this piece because it does not use economic theories and phony rhetoric to obscure and gloss over the financial and banking fraud that was pervasive in the 1920's. The system had been corrupted and compromised, and the economy had been largely hollowed out, like a shell that simply collapsed.
And the liquidationist, or in more modern terms austerity, policies that followed nearly destroyed the country in the manner of the unfolding tragedy that the world did not yet recognize in Europe.
It is fitting that we review this page of history at this time, having now overturned most of the protections that had been put in place during the 1930's by our fathers to protect the people from financial predators.
It is good for the Banks and the monied interests that the people are so foolish and easily led, that they willingly bare their childrens' throats for them, giving all for the sake of a profane ideology of sneering arrogance and self-destructive greed.
Cruel gods make for cruel people, people who justify their rites of cruelty as expediency, practicality, and frankness, but which are in reality little more than rationales for emotional deformity, narcissism and selfishness.
"Somebody has to suffer and in this case the city manager has decided it should be the bondholders..."
As we go forward, more than ever before, it is all about managing counterparty risk, including 'accounting errors' and outright fraud.
Sometimes you may be able to adequately prepare and allow for risk of loss.
But at other times it can come suddenly and unexpectedly, as it did to the customers of MF Global, and only insiders will be able to take measures to protect themselves, and leave the unsuspecting to take the greatest share of loss.
Don't wait to fill your lamps with oil until after the darkness falls, for then the price may be very dear, if there is any to be had at all.
The philosophical niceties and theories of the pied pipers of paper money, presented every time they reappear throughout history as something 'new' and 'modern,' and 'innovative,' will provide little comfort for the victims of the hard realities of default, whether it comes from non-payment or inflation.
“The wise do at the beginning what the fool does at the last.”
Baltasar Gracian
When you consider what is 'safe,' keep in mind the customers of MF Global and the injustice done to them by a system tainted with fraud and corruption. And then make your plans accordingly.
Stockton to Take Steps Toward Bankruptcy, City Manager Says By Alison Vekshin and Michael B. Marois
February 24, 2012, 5:22 PM EST
Feb. 24 (Bloomberg) -- Stockton, California, may take the first steps toward becoming the most populous U.S. city to file for bankruptcy next week because of burdensome employee costs, excessive debt and bookkeeping errors that misrepresented accounts, city officials said today.
The Stockton City Council will meet Feb. 28 to consider a type of mediation that allows creditors to participate, the first move toward a Chapter 9 bankruptcy filing under a new state law. The council will also weigh suspending some payments on long-term debt of about $702 million, according to a 2010 financial statement.
"Somebody has to suffer and in this case the city manager has decided it should be the bondholders who suffer,” Marc Levinson of the Sacramento-based law firm Orrick, Herrington & Sutcliffe LLP, which represents the city, said at a news briefing at Stockton’s City Hall today...
It's little more than a liquidity puffball now. That applies to both the markets and the economy.
The Banks must be restrained, and the financial system reformed, with balance between individuals and the corporations restored to the economy, before there can be any sustained recovery.
Let us pray for those whose hearts are hardened against His grace and loving kindness by greed, fear, and pride, and the seductive illusion and crushing isolation of evil.
We pray that we all may experience the three great gifts of our Lord's suffering and triumph: repentance, forgiveness, and thankfulness. And in so doing, may we obtain abundant life, and with it the peace that surpasses all understanding.
It is available for your use at no cost, but with attribution and a link to the original posting.
I make every attempt to respect the rights of others. If you feel that something here has infringed your work please let me know and I will correct it immediately. It is not always easy to determine the status of material posted to the Internet with regard to fair use and public domain.
